"Setting clear goals and finding measures that will mark progress toward them can improve the human condition."

Over the holidays I read The Most Powerful Idea in the World, a brilliant chronicle by William Rosen of the many innovations it took to harness steam power. Among the most important were a new way to measure the energy output of engines and a micrometer dubbed the "Lord Chancellor," able to gauge tiny distances.

Such measuring tools, Rosen writes, allowed inventors to see if their incremental design changes led to the improvements-higher-quality parts, better performance, and less coal consumption-needed to build better engines. Innovations in steam power demonstrate a larger lesson: Without feedback from precise measurement, Rosen writes, invention is "doomed to be rare and erratic." With it, invention becomes "commonplace."

Of course, the work of our foundation is a world away from the making of steam engines. But in the past year I have been struck again and again by how important measurement is to improving the human condition. You can achieve amazing progress if you set a clear goal and find a measure that will drive progress toward that goal-in a feedback loop similar to the one Rosen describes. This may seem pretty basic, but it is amazing to me how often it is not done and how hard it is to get right.

In previous annual letters, I've focused a lot on the power of innovation to reduce hunger, poverty, and disease. But any innovation-whether it's a new vaccine or an improved seed-can't have an impact unless it reaches the people who will benefit from it. That's why in this year's letter I discuss how innovations in measurement are critical to finding new, effective ways to deliver these tools and services to the clinics, family farms, and classrooms that need them.

Our foundation is supporting these efforts, but we and others need to do more. Given how tight budgets are around the world, governments are rightfully demanding effectiveness in the programs they pay for. To address these demands, we need better measurement tools to determine which approaches work and which do not.

"I have been struck again and again by how important measurement is to improving the human condition."

In this letter I'll highlight strong examples I've seen in the past year of how measurement is making a difference. In Colorado, Melinda and I learned how a school district is pioneering a new system to measure and promote teacher effectiveness. In Ethiopia, I witnessed how a poor country, pursuing goals set by the United Nations, delivered better health services to its people. In Nigeria, I've seen how the digital revolution allows us to improve the use of measurement in the campaign to eradicate polio. Thanks to cell phones, satellites, and cheap sensors, we can gather and organize data with increasing speed and accuracy. These modern-day Lord Chancellors will also help speed progress in education and agriculture, as well as other health efforts.

A business has increasing profit as its primary goal. Management decides the actions -such as improving customer satisfaction or adding new product capabilities-that will drive profit and then develops a system to measure those on a regular basis. If the managers pick the wrong measures or don't do better than their competition, profit goes down. Business magazines and business schools analyze which measures companies use and which companies have done particularly well or poorly. Other companies benefit from these analyses, learning from the performance of their competitors which tactics and strategies work and which don't. The understanding of how to use measurement to drive excellence in business has improved dramatically in the last 50 years.

Unlike business, where profit is the "bottom line," foundations and government programs pick their own goals. In the United States our foundation focuses mostly on improving education, so our goals include reducing the number of kids who drop out of high school. In poor countries we focus on health, agriculture, and family planning. Given a goal, you decide on what key variable you need to change to achieve it-the same way a business picks objectives for inside the company like customer satisfaction-and develop a plan for change and a way of measuring the change. You use the measurement as feedback to make adjustments. I think a lot of efforts fail because they don't focus on the right measure or they don't invest enough in doing it accurately.